Scottish independence would saddle households with large increases in their
power bills and “halt” investment in the North Sea oil industry, the Energy
Minister has warned.

Michael Fallon told a fringe meeting at the Tory conference in Manchester that UK taxpayers contribute £500 million a year towards Scotland’s renewable energy industry.

This is 40 per cent of the UK’s renewables total despite Scotland only having about 10 per cent of the population, he said, suggesting this burden would have to be borne by Scottish bill payers alone after independence.

Mr Fallon also highlighted £20 billion of tax relief for the decommissioning of North Sea oil and gas fields, a sum he said a separate Scotland could not hope to match.

Scottish tax revenues from oil have fluctuated between £2 billion and £12 billion a year, he said, meaning a separate Scotland would have to resort in the bad years to “short-term borrowing that would make even Gordon Brown blush”.

His intervention came after the Institute for Fiscal Studies warned a separate Scotland would face making £5.9 billion of spending cuts or tax increases in the two years immediately following independence.

A leaked report by John Swinney, the SNP Finance Minister, acknowledged the volatility of North Sea revenues, while a recent expert report warned Scotland’s cost of borrowing would be higher after separation.

Alex Salmond has also insisted the remainder of the UK would continue to subsidise the Scottish renewable industry and purchase the energy produced despite warnings it could as easily do so from Ireland or the Continent.

Speaking at the event, hosted by the Conservative Friends of the Union and the London Scottish Conservative Club, Mr Fallon said: “Only as the United Kingdom can we finance the tax regime that drives investment in the North Sea.

“This month the industry won tax reliefs worth £20 billion over 30 years against decommissioning costs. A separate Scotland could not afford that.”

But he said Scottish independence did not just present a “danger” to North Sea oil and gas, highlighting the extent of the UK subsidy for the renewable energy industry.

“A separate Scotland could not afford this scale of support. A vote for separation would halt investment in the North Sea, and leave Scottish taxpayers with huge bills or big increases in energy prices or both,” he said.

“Scotland’s economy and Scottish jobs are at risk in next year’s referendum.”

He said Scottish public spending is not currently affected by the volatility of oil revenues thanks to the UK’s much broader tax base.

But Mr Fallon warned this would cease after separation, citing the fact that the tax take in 2012 was 40 per cent down on the previous year. He said this was equivalent to two-thirds of spending on Scottish education.

“And it’s important to nail the myth that if only Scotland were allocated most of North Sea revenues then everything would be fine. Scottish public spending is already 10 per cent higher than the UK average,” the minister said.

He added that the SNP’s plan to squirrel away oil revenues in a special fund for future generations would create a “huge black hole” in the Scottish Government’s finances bigger than its health, education and justice budgets combined.

This would require a separate Scotland’s ministers to increase taxes or borrowing or cut public services, he warned.